Pennon Group Plc
Annual Report 2012
Pennon is one of the largest environmental and resource management groups in the UK. Sustainability is at the heart of our business. The provision of high quality water and waste management services is fundamental to the well-being and sustainability of our society. Ensuring the availability of plentiful clean water which is used wisely and not wasted, together with effective waste water treatment, is South West Water’s business. Transforming waste into a resource by recycling and generating renewable energy is Viridor’s business.
Substantial investment in our water and sewerage activities and infrastructure enables us to deliver both high levels of performance and service, as well as long-term security of supply. In our recycling and waste management business we continue to invest in facilities and services to transform waste into quality recycled materials and renewable energy, helping customers from all sectors to meet their own recycling and waste management objectives, while addressing the longer term strategic imperatives of resource efficiency, protecting the environment and preserving natural resources.
We believe that a well-managed and responsible Group, with sustainability both at the core of its operations and fundamental to its business philosophy, will deliver strong performance and lasting value for our stakeholders. We contribute to the well-being of the communities that we serve, and of the environment in which we operate. Our commitment to sustainability is embedded in our operational and business practices, our relationships with our stakeholders, and in our long-term strategy.
Pennon was delighted that this commitment was recognised when the Group won the ‘Achievement in Sustainability’ award at the annual PLC Awards in February 2012. This award recognises accomplishments in key areas of economic, environmental and social sustainability. Judges highlighted our performance in renewable energy power generation at our waste water treatment works and landfill gas control, as well as our funding for community and environmental projects.
Our commitment to economic, social and environmental sustainability is embedded in our strategic objectives to:
manage Pennon Group as a sustainable and successful business for the benefit of shareholders and other stakeholders
aim to ensure that all our business activities have a positive economic, social and environmental impact on the communities in which we operate
engage with all our stakeholders and foster good relationships with them
strive for the highest standards of health and safety in the workplace so as to minimise accidents, incidents and lost time
develop and motivate our employees, treat them fairly and ensure that they are fully engaged in all aspects of the Pennon Group’s objectives
aspire to leadership in minimising emissions that contribute to climate change, and develop climate change adaptation strategies
aspire to leadership in all aspects of waste prevention and resource efficiency.
Key environmental issues
Climate change and resource efficiency
Climate change and excessive resource use are two fundamental challenges for society which are being addressed by developments in the UK’s water, waste and renewable energy policies. Pennon is proactively approaching these key issues with strategies that underpin the sustainable performance of the business.
Group programmes increase the resilience of both South West Water and Viridor by protecting our assets, reducing emissions, harnessing renewable energy and maximising materials recovery.
Demand for safe drinking water and water security, and for recycling, renewable energy and resource efficiency will continue to grow as climate change impacts start to make themselves felt.
Renewable energy and carbon reduction
Both subsidiaries have detailed energy efficiency and carbon reduction plans in place. Viridor’s five-year plan aims to increase energy efficiency by more than 20% by 2016, equivalent to an overall reduction of 4% in total emissions per annum. South West Water’s energy and carbon management strategies to 2030 include plans for a structured energy efficiency programme and ambitions to further develop and exploit opportunities for renewable energy schemes. The company’s 2015 carbon reduction target is to cut operational emissions from energy use by 18% compared with 2009/10 levels, with further reductions targeted in the longer term in line with national strategy.
Pennon participates in the UK Government’s Carbon Reduction Commitment and has an ambitious strategy and programmes in place to continuously improve energy efficiency across the business. In the first year of audited performance, we were ranked 230th out of 2,013 participating companies.
Pennon also voluntarily participates in the internationally recognised Carbon Disclosure Project, coming 53rd out of the 236 FTSE 350 companies that responded, with an improving percentage score.
Pennon is a net producer of renewable energy, largely due to Viridor’s power generation from its landfill gas and energy from waste (EfW) operations. In 2011 around 30% of renewable energy generated in the UK was derived from landfill gas and municipal solid waste combustion. Viridor’s landfill gas power generation is now approaching peak capacity and will be replaced by increasing contributions from EfW and anaerobic digestion (AD) facilities. South West Water is also increasing its renewable power generation capacity using hydro-electric, combined heat and power (CHP) from biogas, and solar and wind installations. This overall generation capacity will continue to offset the Group’s energy use.
Viridor invested £93 million in renewable energy and recycling plants during 2011/12. It now has a generating capacity of 136MW. It plans to have 300MW of installed capacity by 2016. The Runcorn EfW plant currently under construction will be the largest waste-generated CHP plant in the UK, with high energy efficiency levels.
As Viridor continues to expand its recycling capacity, so a growing proportion of its operations rely on energy-intensive processing equipment – though recycling generally provides net carbon and energy benefits.
South West Water’s core operations also require considerable amounts of energy to treat both drinking and waste water to high standards and to pump it around the region. The cost of South West Water’s energy use is around £20 million a year, and around 80% of the company’s carbon emissions are associated with energy use, underlining the importance of energy efficiency in the business. The company’s ongoing pump efficiency and ‘PowerDown’ programmes are helping to reduce energy use.
During the year Viridor achieved its target of three accreditations to the Carbon Saver Gold Standard, most notably one for the whole of its Scottish operating region. This reflected the achievement of a 10% absolute reduction in energy-related carbon emissions in Scotland over the last three calendar years.
South West Water continues its accreditation to the Certified Emissions Measurement and Reduction Scheme (CEMARS).
In spite of two years of significantly reduced rainfall, resulting in the Environment Agency declaration of an environmental drought in April 2012, South West Water has ensured security of supply by investing in its ability to transfer water and converting two former china clay pits into reservoirs. This, together with our industry-leading leakage control, has led to the 15th year without water restrictions.
South West Water liaises extensively with Defra, other regulators and landowners to promote catchment management as a tool to improve raw water quality. The company’s flagship environmental project ‘Upstream Thinking’ includes moorland restoration projects on Exmoor and Dartmoor, and catchment sensitive farming programmes to improve land management, delivered in partnership with the Westcountry Rivers Trust and the Devon and Cornwall Wildlife Trusts. Defra endorsed the company’s approach in its Water White Paper published in December 2011, and ‘Upstream Thinking’ won the ‘Partnership Initiative of the Year’ category at the Water Industry Achievement Awards in March 2012.
Viridor’s range of services has changed to ensure they are aligned to the waste hierarchy that is enshrined in European and UK waste policy legislation. This reflects the overall environmental benefits in the priority options for managing waste. It gives top priority to waste prevention, followed by re-use and recycling. Disposal by landfill is the least favoured option. Viridor now transforms waste into valuable, high quality commodities wherever possible, using a range of treatment technologies, including advanced materials recycling facilities, mechanical-biological treatment, composting and household waste recycling sites, often combining the provision of these facilities in integrated waste management contracts. It subsequently looks to recover energy from non-recyclable and residual wastes using energy from waste and anaerobic digestion technologies to offset fossil-fuel based energy generation.
During the year Viridor continued to increase its recycling capacity through both acquisition and organic growth, recycling 2.3 million tonnes of material (2.1 million tonnes in 2010/11), with 1.8 million being traded recyclates (1.7 million tonnes in 2010/11).
Key social issues
Commitment to communities
Pennon Group recognises that it is part of, and has a responsibility towards, the communities in which it operates and it strengthened its community relations and investment policy during the year. It aims to ensure that business activities have overall positive community benefits. The Group recognises the importance of developing open and transparent engagement with communities and other organisations and its employees take part in a range of volunteer projects. Sponsorships and partnerships with community organisations also help deliver on our commitment in this important area, such as the ‘Keep Britain Tidy’ ‘BeachCare’ initiative.
Bathing water quality is vitally important to local communities and visitors across the region. Since privatisation in 1989, South West Water has invested £2 billion in 140 new waste water treatment works via our ‘Clean Sweep’ programme. As a result 98.6% of our 144 EU-designated bathing waters now meet or exceed the EU’s ‘Good’ standard compared with 96.5% in 2010 and 95.1% are deemed ‘Excellent’ compared with 90.3% in 2010.
In 2011 South West Water launched its ‘BeachLive’ website. This award-winning initiative was developed in partnership with Surfers Against Sewage and others, and enables beach users to check real-time bathing water information at 21 Blue Flag or popular beaches in Devon and Cornwall every day. The number of beaches covered is being extended in 2012/13.
The investment required to deliver the bathing water improvements has resulted in higher bills than in other regions. The company understands that some customers have problems paying, and has developed an industry-leading ‘Affordability Toolkit’ comprising a range of practical measures, including a free debt helpline, payment plans, and water meter and water conservation advice. Its ‘WaterCare+’ scheme has helped its 10,000th customer since it was established in 2007. The company has also established a ‘FreshStart’ fund of up to £1 million, administered by Plymouth Citizens Advice Bureaux (CAB), to help those in financial crisis due to circumstances such as bereavement. South West Water partners with charities and agencies such as local Citizens Advice Bureaux and Age UK to find and help those in the most need. Our work in this area was recognised in the CAB publication, ‘How to do the Right Thing’. The company is supporting the business community by sponsoring local ‘Battle the Bills’ sessions which help up to 1,000 small and medium-sized businesses by offering advice on water and energy use.
Challenging economic conditions lead Viridor’s local authority and business customers to scrutinise costs and demand value for money in all aspects of service. Economic drivers such as the Landfill Tax, public and private sector procurement practices, as well as Viridor’s customer service partnerships and provision of waste audits, ensure that the company remains keenly competitive for the benefit of its customers.
In 2011/12 Viridor (via an independent distributive Environmental Body, Viridor Credits) provided £10.3 million of funding for community, amenity and environmental projects in areas close to its landfill facilities through the Landfill Communities Fund. The company also provides direct sponsorship and community support in its operational areas.
Viridor has active community liaison groups at all of its major operational facilities, ensuring effective dialogue with local community representatives. It also consults extensively with local communities and stakeholders when looking to develop new facilities, in order to keep people informed and to enable their full involvement in the planning process. During the year Viridor opened another two education centres in Greater Manchester, helping to promote understanding and best practice in waste prevention, recycling, recovery and resource management. The company now operates or supports 10 such centres across the UK and welcomed more than 13,000 visitors during the year.
Viridor and South West Water are responsible for the management and stewardship of substantial landholdings, particularly at reservoirs and landfill sites, including 26 closed landfill sites and 17 Sites of Special Scientific Interest. These areas can have significant benefits and the companies work in partnership with the Wildlife Trusts, local communities and employees to enhance biodiversity.
Five Viridor sites have now attained the Wildlife Trust’s Biodiversity Benchmark standard, with one awaiting accreditation. Three sites of low biodiversity have been identified for five-year improvement plans and a biodiversity strategy covering all sites will be developed during 2012/13. South West Water’s reservoir sites are managed by the South West Lakes Trust, the region’s largest combined environmental and recreational charity, which delivers a wide range of facilities, such as visitor centres and watersports facilities. These amenities attract around two million visits every year. Four flagship sites have received the gold standard in the Green Tourism Business Scheme’s prestigious awards.
Engaging with other stakeholders
Pennon and its subsidiaries aim to be open and collaborative, fostering positive relationships with stakeholders and delivering long-term benefits and added-value. South West Water’s Chief Executive has just completed four years as Chair of Water UK. He is now Chair of the Cornwall and Isles of Scilly Local Enterprise Partnership, and the Vice President of the Institute of Water. Viridor’s Chief Executive is currently Chair of the Government’s Living with Environmental Change Business Advisory Board and of the Environmental Sustainability Knowledge Transfer Network.
Both companies inform Government policy in respect of pertinent industry issues. For Viridor in 2011/12 this included liaison and responses to consultations on the Waste Policy Review for England and Wales, Scotland’s Zero Waste Plan and regulation, and the London Waste Strategies. Viridor’s ‘OpenSpace’ innovative data-sharing portal has been developed with the Environment Agency in England, meeting their ‘better regulation’ agenda. This ground-breaking project to supply environmental monitoring data live to the regulator has substantial cost and resource saving potential going forward.
The 2009 Walker Review highlighted the huge environmental costs water customers in the South West of England, making up just 3% of the UK population, have been paying for the clean-up and protection of 30% of the nation’s bathing waters since 1989. For four years, South West Water has worked closely alongside MPs of all parties and consumer groups to press the South West’s case at the highest levels. In November 2011 the Chancellor of the Exchequer confirmed that the Government will be reducing the annual bills of household customers in the company’s service area by £50 each, until at least 2020.
During the year South West Water embarked on a comprehensive research and engagement programme with customers, community and environmental representatives as part of its preparation for the 2015-2020 business plan and price setting. The WaterFuture Customer Panel has been established to assist with this process.
Commitment to employees
Employees are at the heart of the work we undertake at Pennon Group. Aiming for best practice in recruitment, training and development, talent management, health and well-being, retention and succession planning is therefore of crucial importance for the health and sustainability of the business. Both companies aim to be good employers and recognise that employees make the difference which helps us to achieve our corporate goals.
Both subsidiaries have a range of family friendly policies, equal opportunity policies and policies to ensure a healthy work-life balance. The companies undertake regular employee surveys to obtain feedback on employee satisfaction and to identify key issues for improvement. Viridor conducted a survey in 2011/12 focusing in particular on its health and safety culture. This showed good levels of employee satisfaction and identified important areas for improvement including internal communications, procedures and training. Employee representation is facilitated through trade union membership and, for South West Water, by an elected Staff Council.
A safe and healthy workforce will always be a priority for the Pennon Group. Group companies’ health and safety policies and procedures are delivered through programmes which integrate with other areas of the business including operations, compliance, human resources and quality. For example South West Water introduced its Think, Act, Prevent (TAP) campaign in 2011, which delivered behavioural safety training to its employees. ‘RIDDOR’ incident rates in both companies reduced during the year, although neither company is complacent and zero accidents is our goal.
Pennon encourages talented people to join the Group, and to stay, by matching the right people to the right roles and by ensuring professional development opportunities throughout their careers within the Group. We have a range of training programmes aimed at different levels across the organisation. For example South West Water’s ‘Managing for Success’ programme and Viridor’s ‘Fundamentals of Management’ and subsequent ‘Management to Leadership’ programmes, try to equip our managers of the future with the necessary skills.
South West Water and Viridor appointed 22 apprentices and graduate trainees during 2011, and South West Water will be creating 20 more apprenticeships in 2012, at a time when youth unemployment is growing.
Key economic issues
Commitment to regional economies
Pennon’s investment for long-term sustainable growth is delivering value for shareholders and stakeholders. The Group companies provide significant support for regional economies by working with hundreds of local suppliers to deliver essential infrastructure and to deliver and improve services for customers.
As one of the largest employers in the region, South West Water employs 1,400 people, both directly and through its contact centre subsidiary, Source Contact Management Limited. South West Water supports regional employment through a variety of external contracts with a particular focus on small businesses, as well as large service providers. Through its £2 billion Clean Sweep investment, undertaken since privatisation, the company has added significant value to the region’s tourism industry by enhancing the natural environment.
South West Water’s PUROS programme enables remote management of assets and centralised planning. PUROS has helped the company to deliver operational efficiencies and outperform Ofwat’s Final Determination, the price limits and expenditure plans determined by Ofwat for South West Water for a five-year period.
Viridor’s operations and continued growth also provide significant regional economic and community benefits throughout the UK. The company directly employs over 3,000 people and provides significant supplier opportunities. Viridor’s investment programme – to gradually replace landfill services with increased recycling and renewable energy generation – creates greater value in terms of jobs and skills. For example, the Runcorn EfW facility will directly employ and provide training for up to 70 highly skilled people in the North West (compared with around 15 people required to landfill the equivalent waste volume). The construction of the project has employed a daily average of 325 people on site, rising to 700 at its peak, and many more through the supply chain.
In addition to the 2012 PLC Sustainability Award, and to the achievements listed under each subsidiary company’s business review, Pennon is listed in the FTSE4Good index. In March 2012 the Group scored 3.8 out of 5 in the FTSE4Good Environmental, Social and Governance ratings assessment. It was also the top ranked utility in four categories of the 2011 ‘Britain’s Most Admired Company’ awards.
In January 2012 Pennon was listed as one of the 100 most sustainable companies in the world by Corporate Knights the company for clean capitalism.
The Pennon Sustainability Committee (previously Corporate Responsibility Committee) is chaired by a Non-executive Director and comprises the Chief Executives of South West Water and Viridor plus two further Non-executive Directors. It is served and attended by senior management from both subsidiaries. The Committee oversees the Pennon Group’s requirement to conduct its business in a responsible manner. Consequently the Committee reviews the strategies, policies, management, initiatives, objectives, targets and performance of the Pennon Group of companies in respect of environmental, social and governance aspects. During 2011/12 the Committee developed a new community relations and investment policy, scrutinised both companies’ approach to carbon management, examined sustainability in supply chains, and maintained its focus on improving health and safety.
Both subsidiaries develop annual sustainability targets as part of business planning and budgeting, putting sustainability at the core of the business. Performance against these targets is reviewed quarterly at executive management meetings, and by the Pennon Group Sustainability Committee.
Delivery of sustainability targets forms part of the remuneration package of Pennon’s senior executives and employees throughout the Group.
Pennon’s sustainability performance for 2011/12 has been audited by Acona Partners LLP, an independent management consultancy that specialises in the areas of sustainability and corporate responsibility.
South West Water and Viridor Sustainability reports
The full 2012 Sustainability Reports for South West Water and Viridor will be published in July and August respectively and will be available to view at pennon-group.co.uk and also on the subsidiaries’ websites.
Green energy generated
Gigawatt hours (GWh)
South West Water
On-site electricity use in Pennon Group
Gigawatt hours (GWh)
South West Water
Carbon Disclosure Project score
* Reassessed to include all imported
electricity used and self-supplied
renewable energy used on South West
South West Water
Renewable energy generation
* Reassessed to include all imported
electricity used and self-supplied
renewable energy used on
South West Water sites.
tonnes of dry solids
Community support, sponsorship and donations
RIDDOR incidence rate
per 100,000 employees
Actual number 20
Renewable energy generation
Community support, sponsorship and donations
RIDDOR incidence rate
per 100,000 employees
Actual number 39
The Waste Hierarchy